(Bloomberg) -- Robinhood Markets Inc. is giving banking another shot, 10 months after its first attempt at a checking and savings product flamed out in spectacular fashion. On Tuesday, the company laid out a new feature, called Cash Management, which takes a more traditional regulatory approach than the startup’s last foray into bank accounts.
The service will move customers’ uninvested cash from their Robinhood accounts into existing banks, which are already insured the through the Federal Deposit Insurance Corp. By working with established players, Robinhood will avoid a hurdle that flummoxed it last time, when it erroneously assumed that the Securities Investor Protection Corp. would cover the insurance on its planned checking product.
Robinhood will offer customers a 2.05% interest rate on cash deposited through the program. That’s higher than many traditional banks, but in line with what a number of other financial technology startups currently offer. The product will not be immediately available on Tuesday, but Robinhood will open a waitlist for interested customers.
The new product launch comes as competition intensifies around the startup’s core product of free stock trading. Just last week, Charles Schwab Corp. announced plans to eliminate commissions for trading U.S. stocks, exchange traded funds and options. While fees have been on a downward trajectory for some time, Schwab’s decision sent shock waves through the industry, and the move was quickly followed by E*Trade Financial Corp. and TD Ameritrade Holding Corp.
“I think when you look at Schwab and E*Trade and these other brokerage houses, we’ve fundamentally changed the way that a lot of these businesses operate,” said Robinhood co-founder Baiju Bhatt. Now, with Cash Management, Robinhood is looking to diversify its offerings beyond the free trading that roiled the finance world.
“This is one of the biggest features that we’re bringing to the Robinhood experience and app in quite a long time,” said Josh Elman, Robinhood’s vice president of product. Today when someone deposits money into a Robinhood account, all they’re able to do with it is trade stocks, cryptocurrencies and other investments, Elman said. With the new product, customers will also be able to earn interest on the money that’s sitting in an account, and make withdrawals or go shopping with a Robinhood debit card.
The Cash Management service will be structured as a deposit sweep account, so called because it “sweeps” uninvested money into a separate program. Robinhood will generate revenue from the service through interchange fees via its debit cards, as well as some payments from the banks where it sends customer deposits, the company said.
The product is a more modest advancement than the checking service Robinhood announced last year, which promised a virtually unheard-of 3% interest rate. But quickly after Robinhood unveiled its plans, the SIPC said it would likely not insure the product, and appeared taken by surprise at Robinhood’s suggestion that it would. “Had they called us, I would have told them what I just told you in that I have serious concerns about this,’’ Stephen Harbeck, then president and chief executive officer of SIPC, said in an interview at the time. Robinhood bailed on its plans to offer the checking and savings products just one day after announcing them.
Last year, “we took the product down almost immediately and hit the reset button,” Bhatt said. But with the launch of Cash Management, “we’ve had a pretty thorough vetting process for this program, and we’ve been working with a lot of external parties,” he said, adding that the company is now working more closely with regulators.
On Monday Robinhood announced the addition of a former U.S. Securities and Exchange Commission official to its board.
To contact the author of this story:
Julie Verhage in New York at [email protected]
To contact the editor responsible for this story:
Anne VanderMey at [email protected]
Take a look at our comprehensive guide to the best and most popular information ebooks and products available today on Detoxing, Colon Cleansing, Weight Loss and Dating and Romance. They are all in one spot, easy to find and compere to make a quick selection for the product that best fits your needs or wants.
So browse through a category and make your preferred selection and come back here to read more choice articles and get a few more helpful tips on ways to help your enhancement.
Colon Cleanse Reviews
Weight Loss Ebook Reviews
Dating and Romance Ebook Reviews